Chapter 5.1.

Part II: THE PROCESS OF SUSTAINABLE ECONOMIC PLANNING

Chapter 5: Globalization of Planned Economy

5.1. Non-bureaucratic planning

A sustainable planned economy is different from the Soviet-style planned economy not only in terms of its perspective, but also in terms of its process. That is, it follows a process of independent joint planning by the production enterprises themselves, rather than administratively led bureaucratic planning as in the Soviet-style.

In that respect, it is similar to the system of the former Yugoslavia, which was called "self-managed socialism." However, in the case of the former Yugoslavia, the emphasis was on "autonomous management," in which the workers themselves managed and operated each production enterprise, and overall planning was only of secondary interest, which in effect brought about a certain degree of competitiveness with the independent accounting of individual production enterprises, indicating a move closer to a market economy.

In contrast, the autonomous joint planning envisaged in a sustainable planned economy places emphasis on "joint management," in which the production enterprises jointly formulate and implement the overall plan.

The formulation body for such joint plans by production enterprises is envisaged to be a representative body such as the "Economic Planning Conference" (hereafter abbreviated as the Planning Conference), which is made up of planners from each production enterprise.

Since the plan will be based on environmental sustainability, the Planning Conference will have the advanced function of environmental economic analysis necessary for economic planning, and will take the lead in formulating the plan. Therefore, this institution will not have bureaucrats like administrative agencies, but instead will have ecological economists as full-time employees.

An ecological economist is a specialist who performs economic analysis and predictions from an environmental perspective, a new profession that can only come into existence when economics and environmental studies are combined. In other words, an ecologist + economist = an ecolonomist.

Even under a capitalist economy, a new field known as "environmental economics" has emerged, but it remains a peripheral area within capitalist economics, which is absolutely premised on a market economy. However, in a sustainable planned economy, environmental economics will become a key knowledge, and corresponding practical jobs will also be created.

This may raise concerns that ecolonomists will become quasi-bureaucratic figures who drive the Planning Conference, but their role is strictly limited to research and analysis that contributes to economic planning, and the actual formulation of plans is submitted to public discussion and passed at the Planning Conference's deliberations, so this body can be said to be closer to a parliament than to an administrative body like the State Planning Commission of the former Soviet Union.

Compared to Soviet-style state planning, such voluntary joint plans are expected to be much more realistic plans that reflect flexible and analytical knowledge based on judgments at the production site.

Furthermore, since a sustainable planned economy is based on the sustainability of the global environment, ultimately it will not be complete unless it is implemented on a global scale. Such a global economic plan must also be envisioned as a system in which each production sector's worldwide federations independently formulate and manage the plan.

👉The table of contents so far is here.

👉The papers published on this blog are meant to expand upon my On Communism.

Chapter 4.7.

Chapter 4: Standard Principles of Planning

4.7. Disciplining principle of the free production domain

In a sustainable planned economy, the planned economy is limited to the environmentally hazardous industrial sectors, while other sectors are left to unplanned free production. This may be interpreted as a kind of mixed economic system between a planned economy and a market economy, rather than strictly speaking a planned economy.

The difficulty common to such mixed economic systems is that mixing two types of economic systems based on different principles can cause malfunctions. To use a chemical analogy, it would be fine if they could be separated without mixing like oil and water, but the most worrisome situation would be if highly toxic substances were produced as a result of mixing them.

To prevent this, it is necessary to view the unplanned free production domain as a residual domain of the planned economy, rather than the "mixed" concept. In other words, the free production domain is considered to be a domain that is outside the scope of the planned economy, but to which the discipline of the planned economy is indirectly applied.

In this regard, it is inevitable that the planned economy will be applicable to free production domain in a spillover manner, since even free production domain will eventually receive supplies of goods and services from the planned domain covering the key industrial sectors related to the supply of capital goods and energy. 

Furthermore, the principle of environmental sustainability also applies to the free production domain, meaning that production activities in the free production domain are regulated by a common environmental legal regime, and "freedom" that undermines environmental sustainability is not tolerated.

By the way,  because a sustainable planned economy is an economic system that does not assume a monetized economy, even a free production domain is not naturally a monetized economy. As such, "freedom" here simply implies that it is not directly subject to economic planning, and a free production domain does not necessarily equal a market economy.

As an ideal type, we can imagine completely free production activities that are supplied free of charge, but the scale to which such activities will actually take place is a world unknown to humanity. As a prediction from economic anthropology, if humans are creatures that essentially desire exchange, then purely altruistic free production activities that do not involve any exchange will be very limited.

Therefore, if the old practice of barter is revived in place of a monetized economy, it is a type of exchange economy, and if the objects of barter are customarily formulated, it approaches a monetized economy. From there, if private currency that is only valid in specific trading circles emerges and becomes established, it will progress to the stage of a customary monetized economy.

In a sustainable planned economy system, customary private currency will not be recognized as official currency, but conversely, it will not be banned. Such economic practices are respected as an expression of private autonomy in the free productive domain. However, they are not laissez-faire and are subject to civil law discipline.

👉The table of contents so far is here.

👉The papers published on this blog are meant to expand upon my On Communism.

Chapter 4.6.

Chapter 4: Standard Principles of Planning

4.6. Material balance -part3- :mathematical models

The application of material balance standards in sustainable economic planning requires rigorous mathematics; getting it wrong could lead to a disruption in the supply and demand relationship in a planned economy, and if anything, supply to meet demand could stagnate, leading to chronic shortages. This is why precise mathematics is necessary for the material balance.

In this regard, the theory of linear programming has long been developed. This is a mathematical method that was researched and developed from the perspective of optimally allocating limited resources, mainly within the planned economy of the former Soviet Union, and the Soviet mathematical economist Leonid Kantorovich in particular was a pioneer in this field.

The theory of linear programming itself can also be applied to production and transportation plans for individual companies in a market economy, and even in the Western market economy, Dutch-American mathematical economist Tjalling Koopmans developed a method of activity analysis that determines the finite combinations of production factors required to produce a single product.

Kantorovich and Koopmans were jointly awarded the Nobel Prize in Economic Sciences in 1975 for their work in the East and West, respectively, and it was intriguing to see how planned economy theory and market economy theory intersected through linear programming.

These pioneering linear programming theories were the product of research at a time when environmental sustainability had not yet been incorporated into either planned or market economies, so further theoretical evolution will be required before they can be applied to a sustainable planned economy.

In this regard, linear programming, simply put, is a mathematical method for obtaining optimal target values ​​within constraints described by first-order expressions, and therefore in a sustainable planned economy, it could be applied to obtaining optimal production target values ​​within the constraints of environmental balance, which serves as the primary standard principle.

However, linear programming is just one type of mathematical programming in the broad sense that provides formulas for humans to use when rigorously mathematically converting plans into mathematics, and there are other mathematical programming methods such as nonlinear programming, which is the opposite of linear programming, and dynamic programming, which divides the optimization problem into multiple stages to prevent combinatorial explosion, and seeks a solution by successively increasing the number of stages.

It may be necessary to use dynamic programming, while still using linear programming as a basis, to derive the optimal solution within the constraints of environmental balance, which is difficult to predict and has multiple predictive scenarios. In any case, the application of such mathematical programming requires the use of supercomputers and artificial intelligence, which serve as the physical foundation.

In this respect, it has been pointed out that in the former Soviet Union's planned economy, inadequate computerization was a technical obstacle to rigorous planning, but this may be due to the fact that the former Soviet Union's planned economy was based on a monetized economy and state initiative, and the state had limited capacity to invest in advanced computerization. The Soviet Union's planned economy was based on a monetary economy and state initiative.

In contrast, since a sustainable planned economy does not essentially presuppose a monetized economy, monetary investment is not necessary - it is not even an issue in the first place. Under a monetized economy, whether it be a nation or a company, the use of advanced computerization and artificial intelligence would require huge investment, but under a sustainable planned economy it is by no means difficult.

👉The papers published on this blog are meant to expand upon my On Communism.

Chapter 4.5.

Chapter 4: Standard Principles of Planning

4.5. Material balance -part2- :local production for local consumption

If the supply and demand adjustment in the material balance is the comprehensive standard principle, then local production for local consumption is its branching standard principle. Local production for local consumption is the principle of consuming locally produced goods locally, and the same term is sometimes used in capitalist societies as a slogan, mainly regarding the production and consumption of agricultural products.

The purpose of local production for local consumption as presented in capitalist societies is often unclear, but the common denominator seems to be a vague mixture of consumer psychological purposes such as a sense of security due to local pride in locally produced agricultural products with a clear producer and place of production, and agricultural policy purposes such as the defense of local agricultural infrastructure exposed to international competitive pressures due to free trade.

However, under a capitalist system that is fundamentally premised on a free market, local production for local consumption is merely a slogan that is left to the discretion of producers and consumers, and it is not actually possible to enforce local production for local consumption in a normative way, such as by banning wide-area long-distance distribution, including international trade.

In contrast, local production for local consumption in a sustainable planned economy is a principle that governs normative consumption plans developed by each local level. Therefore, the items covered are not limited to agricultural products, but extend widely to everyday necessities related to food, clothing, and shelter.

It also serves as an indicator of local material balances in comparison with the overall supply and demand adjustment of material balance, so from the perspective of economic planning, it results in the decentralization of economic planning. Therefore, local production for local consumption itself contains the principle of supply and demand adjustments at the local level, and here too, production capacity is calculated strictly according to the environmental balance.

However, unlike the formal decentralization attempted in the former Soviet Union as part of the reform of the inefficient planned economy system, this is a substantial decentralization aimed at ensuring the essence of a sustainable planned economy. In fact, the planned implementation of local production and local consumption limits long-distance transportation, which is one of the major sources of carbon dioxide emissions, and contributes greatly to environmental sustainability. From this perspective, local production for local consumption in a sustainable planned economy can also be said to be the standard principle for distribution and allocation.

Thus, local production for consumption in a sustainable planned economy is not a policy slogan for defending local industries against global capitalism, nor a technical measure for reforming the planned economy system, but rather it is positioned as one of the essential material balance standards that stems from the essential requirements of a sustainable planned economy.

👉The papers published on this blog are meant to expand upon my On Communism.

Chapter 4.4.

Chapter 4: Standard Principles of Planning

4.4. Material balance -part1- :supply-demand adjustment

In a sustainable planned economy that places emphasis on environmental sustainability, environmental balance is the overriding standard principle for planning, but because economic planning means the planned adjustment of the entire economic process of production, distribution, and consumption, the principle of material balance is essential.

Material balance means the overall prior balancing of demand and supply in the entire economy. This prior balancing of supply and demand has been emphasized in planned economy theory as the biggest difference from a market economy, which leaves supply and demand to the results of random transactions in the market, resulting in undisciplined economic cycles, including depressions, due to the whims of supply and demand.

In this respect, supply and demand adjustment remains an important principle in a sustainable planned economy, but unlike traditional planned economy theory, sustainable planned economy theory has a two-stage approach in which the standard of environmental balance is first applied, and then supply and demand adjustment is applied within that framework.

As a result, supply and demand adjustment will be limited to environmentally burdensome industrial sectors - which generally overlap with key industrial and mining sectors, including the energy industry - and will not be expanded to cover all industrial sectors, as was the case in the former Soviet-style planned economy. In other words, non-environmentally burdensome industrial sectors will not be subject to supply and demand adjustment, and will be left to free production.

When supply and demand adjustment is applied, production plans are usually drawn up based on predicted demand, but in a sustainable planned economy, this process is reversed, and demand is regulated according to the production volume and production method permitted based on environmental balance standards.

In other words, production volume is not determined based on raw demand, such as "we want this much," but rather demand is determined according to the production volume and production method permitted by environmental balance standards. To that extent, demand is no longer directly linked to human consumption desires, and is, so to speak, environmentally normed.

In this respect, unlike the former Soviet-style planned economy which placed emphasis on economic development, where production targets (quotas) to be achieved were normatively determined and demand was stimulated accordingly, the environmentally acceptable production capacity will be normatively determined and demand will be derived accordingly.

However, demand will not be determined automatically. If the limit at which humans can live a culturally fulfilling life is not guaranteed, it could lead to the enforcement of poverty. Therefore, production capacity must be adjusted so as not to fall below this cultural limit of survival.

👉The papers published on this blog are meant to expand upon my On Communism.

Chapter 4.3.

Chapter 4: Standard Principles of Planning

4.3. Environmental balance -part 2- : mathematical models

It was mentioned in the previous section that the key to the functioning of a sustainable planned economy is to devise a model to actuarially implement "control" in the "environmental balance," which is the priority reference principle in a sustainable planned economy. The former method calculates the environmental impact of production, distribution, and consumption activities, while the latter calculates the environmental impact on natural ecosystems, focusing on land and water areas.

The former can be further divided into a method for calculating the environmental impact of each production sector and a method for calculating the environmental impact of the consumption process of products, but the calculation of the environmental impact of each production sector is the key to formulating specific economic plans.

In formulating a comprehensive economic plan, it is necessary to calculate the overall environmental impact of each production sector, taking into account the interconnectedness of individual production sectors, rather than individual calculations for each sector. In this regard, the use of input-output model is indispensable.

The input-output model is a correlation diagram created by Soviet-American economist Wassily Leontief, inspired by Marx's reproduction schema, which quantifies the input-output structure in the production and distribution process of each industrial sector in a matrix format. In capitalist market economies, it is used to understand the economic structure and calculate the production ripple effect.　

This input-output model itself can be used to determine the "material balance," which is the second standard principle in a sustainable planned economy, but it can also be used as a basis to determine the "environmental balance," and to calculate the environmental load for each sector.

Leontief was also involved with postwar Japan, and the "Embodied Energy and Emission Intensity Data for Japan  Using Input-Output Tables (3EID)" that Japan's National Institute for Environmental Studies has been developing since the 1990s is based on input-output tables divided into around 400 industrial sectors, and calculates the amount of environmental load, such as energy consumption and greenhouse gas emissions such as CO2, that occurs in unit production activity (equivalent to one million yen) in each sector. This is a powerful model that can serve as the basis for environmental balance calculations.

On the other hand, the method of calculating the environmental load during the consumption process of a product is useful for calculating the cross-sectional environmental load during the consumption and distribution process of a product, which is comprehensive and difficult to grasp using a vertical input-output table.

Although the specific method has not yet been established, the Carbon Footprint, which investigates and grasps the source of greenhouse gases such as carbon dioxide emitted in the life and activities of individuals, groups, and companies, may be applicable to calculating the overall environmental load other than greenhouse gases.

In response to the above, methods for calculating the environmental load on natural ecosystems, focusing on land and water bodies, are needed when planning the use of land and water bodies that are essential for humans to continue industrial activities, including agriculture.

In this regard, the "Ecological Footprint (EF)", defined as "a metric of human demand on ecosystems, or more precisely on the planet’s biocapacity, which tracks how much mutually exclusive, biologically productive area is necessary to renew people’s demand for nature’s products and services", can be a useful clue.

When organically combined with the methods for calculating the environmental load associated with production, distribution, and consumption activities mentioned above, the EF serves as a numerical indicator for planning so that the EF remains within the limits of biological production for each piece of land and water body.

However, the existing calculation models presented above as concrete examples were all devised as methods of environmental analysis under a capitalist market economy, and therefore at present they remain analytical tools for environmental balances that are premised on a capitalist market economy. Further application is required when applying these to a planned economy.

👉The papers published on this blog are meant to expand upon my On Communism.

Chapter 4.2.

Chapter 4: Standard Principles of Planning

4.2. Environmental balance -part 1- : mitigation vs. control

In sustainable economic planning, environmental balance is a criterion principle that takes precedence over material balance. Environmental balance strictly means ecological balance pertaining to the balanced maintenance of the earth's natural ecosystem.

In that sense, it might be more appropriate to clearly define it as "ecological balance," but since this is not necessarily a widely supported term, here we will use the term "environmental balance," which has the broader meaning of a healthy balance in the global environment.

The most elementary principle of ecological balance in this sense is mitigation, which reduces the load on the ecosystem as much as possible. This is not about controlling the development itself, but about gradually reducing the environmental burden caused by the development. The stages of the process are avoidance, minimization, correction, alleviation, and compensation, in that order.

The first stage, "avoidance," is almost never adopted because it is a zero approach to avoiding certain development activities, and the second stage, "minimanization," is also difficult to adopt because it means minimizing the extent and scale of certain development activities.

The third, "correction," works insofar as it is possible to restore an ecosystem damaged by a development activity, but is rejected when that restoration requires significant costs, and is structured so that it eventually settles on the fourth, "alleviation." In reality, even alleviation is an obstacle to development, so it is often dealt with by the fifth option, "compensation," (including monetary compensation), which is provided as an escape route.

Such an idea is compatible with the loose environmental policy of "environmental protection" within the capitalist framework symbolized by the "development and environment compatible" slogan. In fact, there is a nod to the fact that this idea originated in the United States, historically the headquarters of capitalism. Even in a planned economy, however, it can be adopted in a development economic planning scheme that focuses on development.

However, as a principle of a sustainable planned economy that focuses on guaranteeing ecological sustainability, "mitigation" principle is just too loose and insufficient as a reference principle. Instead, it is necessary to introduce the concept of "controlling."

"Controlling" is a reference principle that goes beyond ‘mitigation’ to more actively control production activities, both quantitatively and qualitatively, in order to maintain ecological equilibrium. In light of the five stages of the “mitigation” principle mentioned earlier, the three stages of avoidance, minimization, and correction are systematically implemented, while the neutralized stages of mitigation and compensation are eliminated.

Such a “controlling” principle is a general framework, but in order to apply it to a planned economy, it is necessary to devise and apply a precise mathematical model that enables balance-of-payments calculations to objectively measure the environmental impact of production activities. This is the next task.

"Controlling" goes beyond "mitigation" and is a standard principle that proactively regulates production activities both quantitatively and qualitatively in order to maintain balance in the ecosystem. In light of the five stages of the "mitigation" principle mentioned above, the three stages of avoidance, minimization, and correction are implemented in a planned manner, while the neutralizing stages of alleviation and compensation are excluded.

This "controlling" principle is just one broad framework, and to apply it to a planned economy, it is necessary to devise and apply precise mathematical models that enable balance calculations to objectively measure the environmental load caused by production activities. This is the next challenge.

👉The papers published on this blog are meant to expand upon my On Communism.